Mothercare struggles in Christmas quarter at home and abroad

By

Sandra Halliday

Published
Jan 8, 2018

Mothercare’s recovery has continued to falter since it released its half-year results a few months ago and on Monday it revealed ongoing tough times for the business over the Christmas quarter. 

The mother-and-baby products specialist said its UK comparable sales declined in the 12 weeks to December 30, “impacted by lower footfall and spend, both in stores and online, following the continuation of consumer trends flagged [earlier]”.

That might have been understandable given how tough UK retail is at present. But it added that “international sales remain challenging,” (although they did "stabilise” toward the end of the period) and those challenges meant that “overall group performance was below expectations”.

So what exactly happened? UK comps fell a worrying 7.2% and total UK sales fell too. The 11% drop was bigger than in previous quarters and brought the year-to-date drop to 4.5%. Part of this fall was linked to the company’s strategic store closure programme, however. At the end of the period, the company had 143 stores with 139 standalones and another four inside Early Learning Centres. 

Meanwhile, online sales may have represented 42% of total turnover in the 12 weeks, which shows the firm among the most dynamic in moving to an omnichannel model, but they fell 6.9% at a time when e-tail sales usually rise, even in a difficult market.

And the bad news on the UK business continued with the firm saying that it saw lower gross margins due to higher discounting. But at least it enjoyed “positive sell-through of stock and cash generation.”

Internationally, a retail sales fall of 3% on a constant currency basis didn’t look quite as bad as the UK performance, but sales at actual exchange rates were down 6.8%. At least that’s an improvement on earlier quarters and internationally, e-tail managed to rise 8.5% in constant currency or 7.4% at actual exchange rates.

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So what did CEO Mark Newton-Jones think of all this? He said “there has been a softening in the UK market with lower footfall and website traffic resulting in lower spend in both stores and online.” And he added that while "international trade was challenging in the quarter overall, we have seen a return to moderate growth in the Middle East over the last seven weeks.”

While this is undeniably positive news, “it is too early to say whether or not this is the beginning of a more sustained upturn in sales across the region.”

Also upbeat, he said that in Russia, its largest international market by turnover, the company “saw a return to growth as the weather became colder, leading to improved trading.”

And his explanation for the UK woes? Well, apart from a tough backdrop, the company had taken “a conscious decision to remain at full price to protect our brand positioning prior to Christmas, but to then discount more heavily in the end of season sale.” 

This has resulted in it having “subsequently seen good progress with strong sell-through rates on autumn/winter clearance lines, albeit these carry lower margins and will lead to a further reduction in full-year margin as a result.”
Whether shareholders and analysts will applaud this strategy or not remains to be seen.

Perhaps not. In the near future, the company isn’t “anticipating any improvement in the short-term market conditions for the UK.” So the adjusted group profit for the year is likely to be anywhere between £1 million and £5 million, a wide range that clearly shows the firm is uncertain about just how trading will develop in the months ahead.